European funding for innovation and opportunities in ... · including ICT, research, education, transport, ... It makes direct financial contributions in the form ... programing period

Petra Hazenberg Partner Strategy, Regulatory & Corporate Finance Deloitte

Said Qaceme Director Governance Risk & Compliance Deloitte

European funding for innovation and opportunities in Luxembourg

Every year, the European Commission co-finances innovative investment projects supporting the policies of the European Union. Multi-million euro cash grants may be awarded within different fields including ICT, research, education, transport, health, and environment, etc. For the most relevant funding schemes, companies, research centers and not-for-profit entities must enter a competitive process and participate in calls for proposals. The current Multiannual Financial Framework covers a period of seven years between 2014 and 2020. Historically, companies in Luxembourg have not been very active in this field and may now take the opportunity to seek EU funding for their R&D and innovation projects.

Every year, the European Commission (EC) co-finances innovative investment projects in the European Union (EU). It makes direct financial contributions in the form of cash grants and public contracts to support projects and organizations that promote and help implement EU interests or policies. The 2014-2020 Multiannual Financial Framework (MFF) covers a set of funding programs that represent Europe’s political priorities for seven years: research and innovation (Horizon 2020), connecting the transport, energy and IT infrastructure of all Member States (Connecting Europe Facility), education (Erasmus+), and competitiveness of Europe’s businesses (COSME) among others.1 Interested parties may apply by participating in calls for projects, which consist in financing project proposals that address specific thematic priorities defined in each funding program.2

Main funding programs supporting innovation

Among all the EU co-financing programs, three in particular, fit the funding needs of innovative companies. These represent €100 billion over the 2014-2020 programing period and are called “Horizon 2020” (H2020), “Connecting Europe Facility” (CEF), and “Life Environment” (Life).The European Commission’s 2014-2020 co-financing budgets have strongly increased compared with the previous 2007-2013 programing period, especially for the aforementioned funding schemes.3

1 http://ec.europa.eu

2 Multiannual financial framework 2014-2020 and EU budget 2014: the figures

3 Analysis of EU’s Multiannual Financial Framework (MFF) for 2014-2020

44.9

2007-2013

€55Bn €100Bn2014-2020

LifeLife

CEFCEF

H2020H202070.2

33.2

3.4

9.7

2.1

Horizon 2020 (H2020)

Horizon 2020 is the new framework program for European research and innovation for the period 2014-2020. It is the financial instrument created to implement the “Innovation Union”, a flagship initiative of “Europe 2020”. “Europe 2020” is an initiative aimed at securing Europe’s global competitiveness. This initiative has the goal of setting a strategy to help Europe emerge stronger from the crisis and prepare the EU economy for the next decade.4

More concretely, the goals of Europe 2020, which should be met by the end of the current decade, are as follows:

• 75 percent of the population aged 20-64 shouldbe employed

• 3 percent of the EU’s GDP should be investedin R&D

• The “20/20/20” targets in terms of reduction ofgreenhouse gas emissions, renewable energyproduction, and energy efficiency should be met

• The share of school dropouts should be under 10percent and at least 40 percent of the populationbetween the ages of 30 and 34 should have adegree or diploma

• 20 million fewer people should be living belowthe poverty line

In order to meet these targets, the European Commission has proposed seven flagship initiatives. Among these, the “Innovation Union” focuses on R&D and innovation policy aiming at closing the gaps between science and market in order to turn inventions into products.

The co-financing scheme Horizon 2020 focuses on major societal challenges and industrial leadership. It will integrate research and innovation funding provided through various programs—such as the 7th Framework Programme for Research and Technological Development (FP7), the Competitiveness and Innovation Framework Programme (CIP), and the European Institute of Innovation and Technology (EIT)—into one coherent program with a unique set of participation rules. Moreover, compared with the previous framework (FP7), the available budget has increased by 56 percent reaching €70.2 billion.

4 http://ec.europa.eu

Figure 1: H2020 - EU Innovation funding by program (€ Billions)

Growth

56%

44.9

70.2

Funding

FP7(2007-2013)

Horizon 2020(2014-2020)

The European Commission’s 2014-2020 co-financing budgets have strongly increased compared with the previous 2007-2013 programing period, especially for the aforementioned funding schemes

Horizon 2020 covers large parts of the European research and innovation landscape including areas such as:

• ICT Research & InnovationThe ICT sector represents 4.8 percent of theEuropean economy and creates 25 percentof total business expenditure in Research andDevelopment (R&D). Moreover, investments in ICTaccount for 50 percent of all European productivitygrowth.The goal of Horizon 2020 is to help increase EUinvestments in ICT by about 25 percent comparedwith the previous FP7 program. These investmentswill support the whole chain from basic researchto innovation delivering new business ideas,through the use of emerging technologies.

• TransportEuropean transport research contributes to findingsolutions to the increasing mobility of people, withlow-carbon technologies, clean vehicles, smartmobility systems, and integrated servicesfor passengers and freight.

• BiotechnologyA strong scientific, technological, and innovationbase in biotechnology will support Europeanindustries securing leadership in this key enablingtechnology.

• HealthEuropean research and innovation in health isan investment in a healthy workforce, a healthyeconomy, and lower public health costs.

• EnvironmentEnvironmental research and Innovation promotessmart, sustainable, and inclusive growth as ameans to helping the EU and Member Statesdevelop a resource-efficient, greener and morecompetitive economy, while delivering high levelsof employment, productivity, and social cohesion.

• SpaceSpace research is fundamental to ensuring that theEU’s space policy continues to provide cutting-edge solutions to everyday societal problems. Italso benefits EU citizens and ensures that Europeremains competitive in space activities.

The Horizon 2020 framework is attractive for innovative companies as it provides important funding potential. The funding rate for research projects may reach a maximum of 100 percent of eligible costs, while the funding rate for innovation projects may reach a maximum of 70 percent of eligible costs.

LIFE

LIFE is the EU’s financial instrument supporting eco-innovation, environmental, nature conservation, and climate action projects throughout Europe. The general objective of LIFE is to support the implementation, updating, and development of EU environmental and climate policy by co-financing projects with European benefit.

LIFE 2014-2020 in particular aims at closing the gap between the development of environmentally friendly technologies and their implementation.

The type of projects that the Life framework supports are split into preparatory projects, which are identified by the Commission to support specific needs for the implementation and development of EU policy and legislation and Capacity Building Projects, which are limited to countries with a GDP per capita of below 105 percent of the Union average.5

Life 2014-2020 compared with the previous framework (Life+) offers a budget increase of 62 percent reaching €3.4 billion.

5 http://ec.europa.eu/environment/life

Figure 2: Life - EU Innovation funding by program (€ Billions)

Growth

62%

2.1

3.4

Funding

Life +(2007-2013)

Life(2014-2020)

Connecting Europe Facility (CEF)

The infrastructure development of the trans-European transport network is closely linked with the implementation and further advancement of EU transport policy. While in the past the TEN-T policy was merely perceived as a funding instrument for major projects, it has now grown into a genuine policy.

At EU level, two sets of funding instruments make financial support available to projects implementing the TEN-T, and the “Connecting Europe Facility“ (CEF) is one of these.6

The Connecting Europe Facility (CEF) finances projects that fill the missing links in Europe’s energy, transport, and digital priorities. In line with the “Europe 2020” strategy, it will also make Europe’s economy greener by promoting cleaner modes of transport, high-speed broadband connections, and facilitating the use of renewable energy. CEF investments are also intended to act as a catalyst to attracting further funding from the private sector and other public sector actors.

The CEF program is organized as follows:

• CEF transportCEF allocates approximately €23 billion forthe modernization of the European transportinfrastructure, the construction of missing links,and the removal of bottlenecks. The focus onenvironmentally friendly transport will improve thesustainability of transport systems in Europe.

• CEF energyCEF aims to close financial gaps and to reducebottlenecks in the energy infrastructure tocontribute to the “Europe 2020” objectives. Thethematic priorities will be smart grids, intelligent,electricity highways, and cross-border CO2

cooperation.

• CEF TelecomDigital service infrastructure acts as a platformon which new industries can create innovativeapplications, and also build digital bridges tofacilitate the mobility of citizens and businessesworking across borders.

The CEF budget has been increased compared with the previous Ten-T framework, reaching €33.2 billion in funding from 2014 to 2020.7

EU funding in LuxembourgLuxembourg-based companies and public sector entities have already taken advantage of EU funding over the previous 2007-2013 programing period. However, the potential of EU funding has not been fully exploited as shown by the following tables. Nevertheless, many entities in Luxembourg are active in business areas that are especially targeted by EU funding (e.g., R&D, innovation, logistics, space, environment, and ICT, etc.) and huge amounts of funds are available until 2020.

6 http://ec.europa.eu/transport 7 http://ec.europa.eu

Figure 3: CEF - EU Innovation funding by program (€ Billions)

Growth

242%

9.7

33.2

Funding

Ten-T (2007-2013) CEF (2014-2020)

CEF investments are also intended to act as a catalyst to attracting further funding from the private sector and other public sector actors

49

8 FP7 website: “FP7 Lu country_profile_and_featured_projects.pdf”

FP7 & Horizon 2020

FP7 is the name of the program that preceded Horizon 2020 and ran between 2007 and 2013. Over that period, this funding program was under-used by Luxembourg players. Indeed, compared with other eligible Member States, Luxembourg has lagged behind in terms of participation, return on GDP, and success rate.Moreover, compared with other Member States, Luxembourg has mostly been positioned in TMT and in Health & Biotech, but underrepresented in R&D. Average funding per project was instead in line with the EU-28 average.8

60 (0,13% of total)€ Millions of funding received

34 (0,13%)Coordinations of project

222 (0,27%)Projects contributed

246 (0,18%)Participations in projects

Ranked 27th

In terms of number of participations, out of EU-28 countries.

Luxembourg key figures Type of projects contributed

17%24%

14%13%

23%12%

7%9%

7%8%

3%

3%2%

7%

5%5%

21%21%

TMT

EU

Health andbiotech

R&D

Transports

Materials andnanosciences

Security

Environment

Energy

Others

LU

Luxembourg performance vs EU-28

18.5%

21.7%

26.0%

Luxembourg

Average EU-28

Best-In-Class

1.78

1.78

3.10

Luxembourg

Average EU-28

Best-In-Class (SL)

Success rateAverage funding per coordination (€M)

Funding received compared to GDP

0.14%

0.35%

Luxembourg

Average EU-28

Figure 4: Key data for Luxembourg regarding FP7 & H2020

As far as Horizon 2020 is concerned, the top 10 Luxembourg participants are mainly public entities and collected 72 percent of the funds granted in the country. Funding is therefore highly concentrated within a few public entities, which could mean there are a lot of other private entities not seizing the opportunities or failing to succeed in the application process. Those top participants have higher average funding per participant and even outperform the average in the EU.

At the present stage, a large portion of the funding remains available for the coming years (approximately 82 percent of the funding remains for future calls) and more calls are expected to be opened throughout the year.9

21,7%

26,0%

Top 10 participants in LU

60

17

43 Other participants in LU

Weight of top ten LU participants in funding( € Millions)

Average funding per participant (€ 000)

244

336

352

All LU participants

Average EU-28

Top-10 LUparticipants

Concentration of actors in the total participation of Luxembourg in FP7

H2020 Timeline H2020 Remaining budget (€ Billions)

2014 2015 2016 2017 2018 2019 2020

On 01.03.2015, 57 calls open for €4.2 Billions of funding (6% of H2020)

Around 82%* of H2020funding remaining for future calls

120 calls closedFor ~8.8 € billions* (~13%* of H2020)

Closed

Open

70,2

57,1

8,94,2

43

To be opened

9 High level estimate based on the number of calls closed and the average amount per call

Figure 5: Concentration of actors in the total participationof Luxembourg in FP7

Figure 6: H2020 timeline and remaining budget

LIFE

Luxembourg is already well positioned in the number of participations in the LIFE program compared with the rest of Europe. It has managed to secure more funding compared with the other Member States when compared with GDP. Moreover, projects in Luxembourg are evenly distributed between Nature/Biodiversity and Environment policy.

In terms of number of participations, Luxembourg is ranked 25th/28.10

20,7 (1,22%)€ Millions of funding received

10 (0,71%)Projects contributed

Ranked 25th

In terms of number of participations, out of EU-28 countries.

Luxembourg key figures Type of projects contributed

50%

50%

0%

50%

39%

11%

Environment policy and Governance

Nature and Biodiversity

Information andCommunication

EU

LU

Luxembourg performance vs EU-28

Funding received compared to GDP

0,01%

0,05%

Average EU-28

Luxembourg

10 Syndicat Intercommunal de l’ouest pour la Conservation de la Nature

The Connecting Europe Facility (CEF) finances projects that fill the missing links in Europe’s energy, transport, and digital priorities. In line with the “Europe 2020” strategy, it will also make Europe’s economy greener by promoting cleaner modes of transport, high speed broadband connections, and facilitating the use of renewable energy

Figure 6: Key data for Luxembourg regarding LIFE

Life funding is mostly granted to international companies and with a lower concentration than in H2020 and CEF. International companies have the largest number of projects, as well as higher average funding per project.

In percent of # of applications In percent of total funding received

International companies

NGOs

Local Authority

Research Institution

40% %302010

International companies

NGOs

Local Authority

Research Institution

661513

6

Type of participants in LIFE programs in Luxembourg

Figure 7:

Connecting Europe Facility—CEF

Luxembourg was well placed in the rankings of the Ten-T funding program. Given the country’s size, the average funding per project is on average higher in Luxembourg than in the other Member States. This could be explained by the strategic and central location of Luxembourg. The type of actors involved were often network operators, ministries or European groups of interest (for trans-European projects) and 100 percent of the projects were related to rail.11

Type of project funded in precedent program (ranked by funding)**

105 (1,09%)€ Millions of funding received

7 (0,96%)Projects coordinated

Ranked 19th

In terms of number of coordinations, out of EU-28 countries.

Luxembourg key figures

EU

LU

3%-

Space

4%-

Multimodal

8%-

Air

8%-

Road

14%

-Water

63%100%

Rail

Luxembourg performance vs EU-28

15.00

13.30

Luxembourg

Average EU-28

Best-In-Class

Average funding per project (M€)

21,7%

26,0%

CFL

Other actors in LU

Weight of top ten LU participants in funding (€ Millions)

Average funding per participant (€ Millions)

13

15

20

102.2

3.7

Average EU-28

All LU actors

CFL

Concentration of actors in the total participation of Luxembourg in TEN-T

11 http://inea.ec.europa.eu/en/ten-t/ten-t_projects/ten-t_projects.htm

Figure 8: Key data for Luxembourg regarding CEF

As far as CEF is concerned, applicants in Luxembourg have only focused on the rail priority so far. A significant portion of CEF funds (38 percent) has already been committed, especially in the recently closed call for transport. However, opportunities remain in telecoms and energy for this year and transport will remain a major theme in the coming years.

Conclusion

With co-financing rates reaching up to 70 percent of eligible cost for private companies and up to 100 percent for public institutions, EU funding programs should become a part of the corporate strategy of all entities promoting innovation.

Three main co-financing frameworks may cover R&D and innovation investments at every stage of companies’ business life cycles as shown below, from research & development with Horizon 2020, through innovation testing and validation with Horizon 2020 and Life to implementation with the Connecting Europe Facility.In Luxembourg, public sector institutions have benefitted from EU funding while private companies have not been very active in the field.

However, given that the programing period will last until 2020, a lot of funding opportunities are still available and innovative companies based in Luxembourg should try to benefit from these cash grants.

CEF Timeline

2014 2015 2016 2017 2018 2019 2020

On 01.03.2015,there were 1 call open and 2 planned calls for at least €0,11 Billions*

Around €20,5 Billions is remaining (68%* of total CEF)

4 calls closed for €12,7 Billions (38%* of CEF)

CEF remaining budget (€ Billions)

Closed

Open

33.3

20.5

12.70.1

43

To be opened

Research & Development

Innovation test & validation

Implementation of innovation

Horizon 2020• ICT• Environment• Transport• Health• etc.

Horizon 2020• ICT• Environment• Transport• Health• Etc.

Life• Environment

Connecting Europe Facility• ICT• Transport• Energy

1

23

Figure 9: CEF timeline and remaining budget